Andy Lane from CTI Consultancy reflects on how liners ought to charge for the sulphur cap. That shirt you’re wearing might just have got three cents dearer.
With 15 months remaining before [container] ships need to become compliant with IMO’s (constantly reiterated) January 1 2020 deadline for the global sulphur cap, the predicted worst-case scenario of “an unholy mess” might be avoided, as the operators accelerate steps to comply, and as they did previously with VGM compliance. At the macro level two solutions exist, either using low sulphur fuels or cleaning exhaust gases, with both still very much in play. The uptake on exhaust scrubbers has increased dramatically in 2018, even if questions pertaining to open versus closed loop technology or whether there will be sufficient 3.5% HFO fuel available remain not totally answered.
For those taking the “cleaner” fuel (LSHFO, marine gas oil or LNG) option, in essence only 12 months remains before these fuels need to be bunkered. None of these fuels will satisfy the longer-term general GHG reductions, but as a stop-gap (and assuming sufficient supply) they will work. They are however the costliest option, although longer-term costs are not easy to predict.
Now we have reached the stage of who will get the bill. This was initiated by Maersk Line last week and has been followed by CMA CGM and MSC this week. I have seen little published by BCOs or 3PLs, although what has been written by them so far is logical and what was to have been expected. Ultimately the [incremental] costs were always going to be heading in the direction of the consumer, which cannot be too much of a surprise.
We have however read a string of outbursts from shipper associations, which have included statements of “new sulphur cap surcharges”, “blatant profiteering” and even the old chestnut of “collusion”. We need to remember that, the revised “BAF” methods are not new (or additional) surcharges, the words “profit” and “liner shipping” do not usually reside within the same sentence, and that there remain zero proven cases of collusion between container carriers.
The distrust between ship operators and shippers has once again been magnified. Whilst it is grand that initiative has been taken, it seems that no prior consultation has taken place, and that is/was a fantastic opportunity missed.
The methodologies announced by Maersk, CMA CGM and MSC are similar, but there are also not so many alternatives to choose from. A case could be made for a per teu nautical miles methodology, however this would also be highly complex, and complexity does not always result in accuracy [of invoicing] or even transparency. With most tradelanes involving some level of ship sharing, to try to base it on specific services is also not so easy.
So the suggested solution is per tradelane, presumably total expected consumption divided by expected quantity of laden teu carried, and then multiplied by a fuel cost differential versus baseline. This is relatively logical and simple, and does provide at least some transparency. We should always avoid making the perfect the enemy of the good.
CMA CGM had suggested (post-2020) a number of $160 per teu, which presumably is a rough global average. For Asia-North Europe (where we have the most economical ships – per teu of capacity), I had calculated something closer to $50 per teu based on the incremental cost of compliant fuel being $200 per metric ton more expensive. Somewhere in the middle is where we might end up, but there remain many unknowns and variables.
I would like to believe that every consumer wishes for a more sustainable planet, and that they accept that some cost is associated with that. So what might these additional costs translate into? Well, at an incremental cost of $160 per teu, if you are buying a shirt that might be as little as $0.03, and maybe as much as $3 for a mid-sized household appliance. So the cost of sustainability is not “quite a lot”, as had been suggested.
Every ship operator still has plenty of incentive to further reduce costs, as cost recovery can (and will) also be a recurring negotiation. If shipping ever becomes cost prohibitive, then to the delight of the leaders of several developed nations, manufacturing will be coming home.